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Long Term Investing

Investing Technique

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Curriculum Content

Despite what many in the investment or investment media imply by their rapidly changing brokerage recommendation lists, long term investing is better than a short-term focus. Any stocks purchased should be treated as a long-term investment. The reason for this approach over trading is very simple: Trading costs versus Investment dividends and compounding interest gains. Short term trading runs up commissions and fees paid to Wall Street brokerages, which is the primary reason that recommendations change so often. Long Term Investing focuses on delivering returns for long periods of time from capital gains and dividends while paying less money in commissions and fees.

Short Term Side Effects

A short term perspective engaged in the massive movement of assets results in constantly paid commissions and fees to brokerages and advisors, increasing their profit at your cost. These costs add up: each dollar paid in fees or commissions is one less dollar that you can use for compounding gains over the long term. Frequent trades result in frequent costs, resulting in potential long-term profit lost. If you regularly gain on trades, you must also pay numerous capital gains taxes, further reducing long-term profit from compounding interest.

Higher frequency in trading makes it more difficult to consistently pick correctly. Instead of entering or exiting investments based on fundamentals or valuations, you must correctly pick entries and exits based on short term charts, rumors, expectations, and opinions from others. It becomes increasingly difficult to profitably pick both the entry and exit points for assets. You are making more bets that things will go your way on lower quality information.

Analysis

Your chances of holding an investment in a low-quality firm and suffering a price crash are significantly higher if you have not relied on proper analysis. In rapid trading, you won’t have time to competently analyze all of your investments. After comparing short-term trading with long-term investing, long-term investment becomes even more rational for investors. Long term investment in a few firms reduces capital loss threats. Your chances of holding bad stocks and suffering capital losses are decreased from financial analysis, risk versus return measurement, and purchases related to valuation estimates.

Long Term Dividends

Additionally, long-term investing allows the collection of dividends and compounding interest from firms with solid fundamentals over time. The collection of dividends is an important benefit to investors. Dividends help to decrease the severity suffered from losses and increase gains paid out. Frequent trading often does not hold assets long enough to collect dividends, or does not always hold a firm’s equity at the time dividends are paid out. Firms often require that shareholders hold equity three months or more before the end of the fiscal year in order to receive dividends. Short term frequent trading often doesn’t hold firms long enough to collect dividends or allow interest to compound safely from one productive firm over time. As an investor, you need long term compounding and dividends to generate wealth steadily.

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International Economic Analysis:

  • Major Currency Economic Summaries
  • Performance of Major Imports and Exports
  • Mandates of Central Banks versus Expectations
  • Performance Indexes of Major Economies
  • Economically Correlated Currency Projections
  • Large Funds Currency Sentiment Readings
  • List of Technical Indicators to Look For
  • Occasional: Foregin Exchange Technicals Markups

American Markets Analysis:

  • Summaries of American Economic Structure
  • Performance of Major
  • Imports/Exports
  • Federal Reserve Mandate versus Expectations
  • Performance Indexes of U.S Economy
  • Economically Correlated U.S Dollar Projections
  • Large Trading Fund Index Sentiment Readings
  • Market Wide Earnings Versus Valuations
  • Fundamental Ranking of U.S Business Sectors
  • Best and Worst Future Consensus Estimates
  • Occasional: Firm Fundamental Strength Report
  • List of Technicals to Look for While Trading

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Major 8 Economic Summaries
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